The Obamacare Bomb Is Very Real - Even If Washington Post Doesn't Quite Get It

Rick Ungar
, ContributorI write from the left on politics and policy.Opinions expressed by Forbes Contributors are their own.

This morning, Sarah Kliff at the Washington Post took some issue with my piece discussing what I view as the ultimate impact of the Medical Loss Ratio rules handed down Friday by the Administration - an impact that puts us firmly on the road to a government single-payer health care system.

Image by Getty Images via @daylife

As I know readers often enjoy a good, public fight between writers, I should begin by saying that I hold Ms. Kliff in very high regard. She is a terrific writer whom I read on a regular basis.

That said, I do think Sarah stretched a bit in the effort to take some wind out of the sails of the piece in question and missed a few key points in the process.

In her article, Kliff appears to take issue with two primary points, starting with the fact that the health insurance companies are hardly on the verge of bankruptcy and are unlikely to find themselves there come the end of this week.

I couldn’t agree more.

At no time do I ever suggest that what I believe to be the inevitable result of the strength the administration has shown in requiring health insurers to truly tow the line on what does- and does not – qualify as a valid expenditure on actual medical care is going to happen tomorrow. Indeed, one would have to possess one heck of a crystal ball to know when the nation will finally find itself with no choice but to adopt a single-payer system because the private insurers will no longer find it worth their while to remain in the business. The road to this inevitibilty could be a long journey or a surprisingly short sprint.

I will, however, say this – whenever I am met with the argument that the health insurance companies continue to have rising stock prices and huge mult-billion dollar profits and, accordingly, are in no danger of going anywhere, three initials always pop immediately into my mind – AIG.

Who would have believed just one week before it all hit the fan that AIG could ever face the financial disaster that befell it? And yet, once the public knew all the facts, it all seemed so obvious.

Ms. Kliff next points out the findings of a senate committee which found that large group policies are already spending about 84 percent on medical care, just one percent short of the new requirement.

That is, indeed, exactly what they found. But, the findings beg the real question which is what were the insurers classifying as an expenditure towards medical care before the newly issued regulations that they will now no longer be able to include?

Quite a bit.

Still, even were we to ignore the fact that health insurers will find themselves far from that 84 percent figure now that they will have to be far more confined by what they are permitted to include as a legitimate medical expense, and even if we were to ignore the lobby influence those health insurance companies had on the senate committee findings, the argument in support of my assertions becomes even more obvious as Kliff continues.

Sarah writes:

Health insurance has never been an industry with an especially large profit margin. It came in at a dismal 35th on Forbes annual rankings of most profitable industries in 2009, well before the health reform law passed, with an average 2.2 percent profits.

Now, do the math. There is no arguing that that the big profits in health insurance come from the large group (corporate) policies. Even if they only had to increase their MLR by just one percent (and I assure you that it will, in reality, be far more), what does that one percent do to a profit margin of 2.2. percent? I'm not suggesting that it will half the profit structure, were the difference between the old MLR and new be but one percent, but it will have a dramatic impact.

The result is neither pretty nor does it justify the shareholders of these large health insurers investing their money when the business is clearly going the wrong way. I can't say what will happen to share prices in the near term. But I think that as the health insurers are forced to deal with these new realities, owners might not like the look of the balance sheets down the road.

Bankrupt tomorrow? No. The future for these companies? Terrible.

And when investors and parent corporations realize that there are much easier businesses out there with far better returns on investment, say goodbye to the for-profit healh insurance industry and hello to a government single-payer health system.